Intermediate progenitor cells possess restricted developmental potential allowing them to amplify the output of stem cells, but how their potential is established remains unknown. In the Drosophila larval brain, the TRIM-NHL protein Brain tumor (Brat) is required for formation of intermediate neural progenitors (INPs), but the mechanisms are controversial. Here, we show that Brat establishes restricted potential in the immature INP by inducing differentiation and suppressing de-differentiation via the evolutionarily conserved B-boxes. Brat induces differentiation by promoting nuclear localization of the transcriptional activator PointedP1 in the immature INP, where PointedP1 triggers timely differentiation via a novel receptor tyrosine kinase-independent mechanism. Furthermore, Brat suppresses de-differentiation of the immature INP by maintaining expression of the Adenomatous polyposis coli 2 protein and antagonizing the function of the -catenin independently of the receptor Frizzled. Thus, Brat promotes generation of post-mitotic progeny and prevents accumulation of aberrant progenitors by restricting the developmental potential in the INP. Giving all TRIM family proteins contain at least one B-box, the mechanism by which Brat restricts the developmental potential in the INP might be relevant to other stem cell lineages, and will likely provide novel mechanistic insight into tumors arisen from de-regulation of intermediate progenitor cells. PUBLIC HEALTH RELEVANCE: Many types of stem cells generate intermediate progenitor cells that exhibit restricted developmental potential and generate differentiated progeny protecting the genomic integrity of the stem cell pool. Failure to properly restrict the potential n intermediate progenitor cells can lead to reduction in differentiated cells and accumulation of aberrant stem-like cells resulting in loss of tissue homeostasis and development of malignancy. The TRIM-NHL protein Brain tumor establishes restricted potential in the neural progenitor cell in the fly larval brain by the combination of promoting differentiation and suppressing de-differentiation. The Brain tumor dependent process provides a novel mechanism to distinguish stem cells from intermediate progenitor cells and suppress tumors arisen from de-regulation of intermediate progenitor cells.